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Manchester may offer loan to struggling restaurant

MANCHESTER — The aldermen are considering a $35,100 city loan to XO on Elm, the fashionable downtown eatery that opened in 2009 but apparently is struggling financially.

The aldermen are set to vote on the loan at their meeting this evening, which begins at 7:30 p.m. The money would come from the city’s Revolving Loan Fund, which is overseen by the Manchester Development Corporation. The MDC board voted to approve the loan.

The loan is unusual in that it would go to an already established business to cover ongoing expenses, rather than to a new business or one undergoing an expansion. Government small business loans are typically based on the number of jobs they would create and support.

The MDC’s loan guidelines state that “investment must have economic development purpose, i.e. job creation/retention or tax base enhancement.”

In a letter, the MDC board urged the aldermen to sign off on the loan based on “a thorough review from the Capital Region Development Council and past positive payment history with Fabiana-Lorena LLC (d/b/a XO on Elm) with the Manchester Development Corporation and the City of Manchester.”

The city loaned the restaurant $100,000 when it first opened in 2009. The additional $35,115 would be a modification of the existing loan. XO is owned by Rosa Paolini, who was an owner of the Piccola Italia restaurant on Elm Street.

The MDC letter does not indicate that XO is experiencing financial difficulties, but e-mail correspondence among the MDC board members suggests that Paolini is struggling to stay afloat.

An e-mail from a loan officer with the Capital Regional Development Council, a statewide organization that underwrites small business loan programs, noted that the “business did not have sufficient cash to pay all bills in a timely manner this spring.”

The e-mail from the loan officer concluded, “This is still a very risk loan request and precarious situation,” but added, “The restaurant is well established and other than this winter had enjoyed a stable customer base.”

The e-mail correspondence indicates that the MDC continued to discuss the loan and the risk of exposing the financial condition of the business should the loan go before the aldermen. In one e-mail, an executive at Citizens Bank, Lori Chandonnais, said, “The only thing I will offer here is that the Mayor, who I was sitting next to at our last meeting, was enthusiastic about assisting Ms. Paolini. I think he would respond positively to the submission of the request and the issue of the turnaround time.”

Two aldermen, Pat Long, Ward 3, and Patrick Arnold, Ward 12, serve as aldermanic representatives on the MDC board. The correspondence was forwarded by Arnold to Alderman-At-Large Joe Kelly Levasseur. Arnold is a candidate for mayor. Levasseur said he planned to raise ask “a lot of questions” about the loan at Tuesday’s meeting.

“My understanding is that those loans were to be granted for occasions that include expansion and for situations that created more jobs, not for some business that got behind on its PSNH bills,” he said.

Mayor Ted Gatsas said he was confident in the MDC’s judgment. “They looked at it. It’s their money they’re lending,” he said, adding, “XO has a pretty good track record in paying loans back.”

The mayor’s office has taken a more direct role in administering the loan fund since the dissolution of the city’s economic development office. Last month, the aldermen voted to place economic development affairs within the mayor’s office.

Arnold, for his part, said he had concerns about the loan.

“The aldermen need to make sure the process is transparent and fair,” he said. “This is one of the reasons I opposed the economic development office going in to the mayor’s office, because it will make an already political process even more political.”

The XO loan comes as the revolving loan program faces the loss of more than $200,000 due to unpaid balances.

Out of 20 loans since 2005, totalling nearly $1 million, 12 are current and in good standing, according to the city’s Finance Department. Five of the loans have been sent to the solicitor’s office, which is taking legal measure to seek payment or a partial settlement.

Earlier in the year, the city was forced to accept write-offs totaling more than $56,000, after two loan recipients, “Make and Take” and “Under The Veil,” won bankruptcy protection.